The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of...
The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry Love, the firm’s new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed below are activity and cost information relating to two of Chocolate Baker’s major products.
|
Muffins |
Cheesecake |
|||
|
|
|
|||
|
Revenue |
$53,000 |
$46,000 |
||
|
Cost of goods sold |
26,000 |
21,000 |
|
Delivery activity: |
||
|
Number of deliveries |
150 |
85 |
|
Average length of delivery |
10 minutes |
15 minutes |
|
Cost per hour for delivery |
$20.00 |
$20.00 |
Using activity-based costing, which one of the following statements is correct?
A. The cheesecakes are $75 more profitable.
B. The muffins have a higher profitability as a percentage of sales and therefore are more advantageous.
C. The muffins are $2,000 more profitable.
D. The muffins are $1,925 more profitable.
Homework Answers
| Cost of Delivery: | ||
| Muffins | 500 | =150*20*(10/60) |
| Cheesecake | 425 | =85*20*(15/60) |
| Muffins | Cheesecake | |
| Revenue | 53000 | 46000 |
| Less: Cost of goods sold | 26000 | 21000 |
| Less: Delivery cost | 500 | 425 |
| Profit | 26500 | 24575 |
| Difference | 1925 | =26500-24575 |
| The muffins are $1,925 more profitable. | ||
| Option D is correct | ||
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